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Health services deals insights: 2021 outlook

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Cause for watchful optimism in 2021

After a quiet spring, health services deal appetites seem to have returned. There were pockets of sub-sector growth and multiple deals over $1 billion, including one megadeal (defined as over $5 billion).

We anticipate proactive deal makers will find attractive opportunities in 2021, even as multiples remain elevated. The sector-wide mean enterprise value to EBITDA multiple for the 12 months through November 15 ticked up to 14.5x from 14.4x in 2019.

Investments in 2021 may focus on organizational resilience, innovative technology, new care delivery channels, alternative ways of working, or mitigating competitive pressures. 

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Challenges and opportunities for deals in 2021

PwC's Deals Sector Leader John Potter discusses the trends driving deals and outlook for 2021.

PwC's Deals Sector Leader John Potter discusses the trends driving deals and outlook for 2021.  Explore national deals trends.

Health services deals outlook

Even as the pandemic continues, some previous sector deal dynamics endure. For example, the Long-Term Care sub-sector remains the highest in deal volume, a trend since at least 2014. Deals growth in other sub-sectors points to additional ongoing patterns. For example, the number of deals targeting the Labs, MRI & Dialysis sub-sector increased for the second year in a row, possibly because of ongoing pricing pressure-driven consolidation in the labs market. There were also more deals targeting the Other Services sub-sector, which includes medical office buildings – a theme we highlighted in our mid-year report. 

2021 may not see vast numbers of pure health services IPOs – they are relatively rare even in more stable times. Mirroring 2019, 2020 saw two IPOs. This year’s were both in the primary care space, including one mid-pandemic (Oak Street Health), indicating continued demand for this specialty.

Special purchase acquisition companies (also known as SPACs) could continue to play a role in large deals. The largest health services deal in the 12 months through November 15 was July’s $11 billion Churchill Capital Corp III-MultiPlan, Inc. combination. 

In all, despite COVID-19 challenges, the second half of 2020 saw seven deals larger than $1 billion, including two other SPAC transactions: Cano Health LLC – another primary care company – and Clover Health Investments Corp., a Medicare Advantage insurer. The timing of these deals could suggest continued appetite for large deals in 2021. It’s harder to draw conclusions about year-over-year declines in deal values by sub-sector because of the large number of deals without disclosed values.  

“In 2021, deals or restructuring could be a matter of survival for some companies. For others, they are likely to be a tool for growth and enabling efficiencies, as COVID-19 uncertainty, competitive pressures, and technological imperatives evolve.”

Nick Donkar, US Health Services Deals Leader

Key deal drivers

Disciplined deals could help navigate uncertainty.

Health services companies face deferred care, rising Medicaid membership, and potentially complex COVID-19 vaccine distribution. Federal aid availability is unclear (as of early December), budget-pressured states could cut reimbursement rates, and the Affordable Care Act could be modified, even as the Biden Administration lends its support.

Thriving amid uncertainty requires resilience. Divestitures or restructuring could free up needed capital, and acquisitions in growth areas such as Medicare Advantage can shore up revenues. Receipt of federal aid could complicate some transactions.

Deals could ease care, workplace, and workforce disruptions.

Facilitated by deregulation, the pandemic has led to greater reliance on virtual, home, and retail care, making related assets more attractive. Technology partnerships that support secure remote work may also help. 

Hospital staffing, an area with notable private equity presence, is increasingly complex as COVID-19 needs intensify. And, as burnout surges, needs for behavioral health and tech-enabled efficiency grow, which could call for investment.

Inter- and intra-sector collaborations are also needed to mitigate issues of health equity and social determinants of health.

Deals could reshape competitive landscapes, and vice versa.

Competitive dynamics will continue to evolve in 2021, with deals playing a role. For example, private equity firms still have plenty of dry powder. 

Providers with cash flow concerns could be acquired by insurers with deferred utilization-driven excess capital or by larger health systems, or could pursue value-based partnerships to mitigate volume losses.

New regulation, antitrust rulings, and regional dynamics – such as horizontal integration among regional health systems – could cause market participants to reevaluate portfolios, alliances, and value chain positioning.

Technology investments could enable growth, efficiency, and consumer-centricity.

Even before the COVID crisis highlighted the importance of scenario modeling and of operational flexibility, health services companies recognized the need to alleviate costly, complicated, and manually-intensive processes. Regulation has also brought attention to interoperability and is likely to increase focus on pricing.

2021 priorities could include alliances that advance automation and machine learning, while streamlining and improving patient or member experiences. Amazon’s recent pharmacy expansion could accelerate these investments, as convenience becomes increasingly important.

About the data The merger and acquisition data contained in various charts and tables in this report has been included only with permission of the publisher of All rights reserved.

S&P Capital IQ: Information provided by or through third parties is provided “as is”, without any representations or warranties by PwC or such third party. PwC and such third parties disclaim any contractual or other duty, responsibility or liability to client and any person or entity that receives such information.

Contact us

Nick Donkar

Nick Donkar

PwC Partner, US Health Services Deals Leader, PwC US

Kristan Chesnut

Kristan Chesnut

Deals Partner, PwC US

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